IFRS 9 and ECL Provisions

Session 1 - Introduction

• What is IFRS 9- what are the key principles and objectives?
• What are financial assets and financial liabilities?
• IFRS 9 history and implementation overview

Session 2 – Financial Assets Classification & Measurement

• Presentation of the three different categories:
  • Amortised Costs
  • Fair value through Profit & Loss (FVTPL)
  • Fair value through Other Comprehensive Income (FVTOCI)
• Accounting treatment determined by (i) business model (ii) nature of cash flows
• Decision tree to decide on the classification of financial instruments
• Balance sheet and P&L calculation of a bond at amortised cost:
  • Based on the Internal Rate of Return (IRR) of future cash flows
  • Treatment of fees in the IRR calculation
• Balance sheet and P&L calculation of a bond at FVTPL and FVTOCI:
  • Effective interest rate method for interests (same as amortised costs)
  • Unrealised gain based on NPV at the current yield of future cash flows
• Reminder on determining fair value:
  • Level 1 based on unadjusted quoted price
  • Level 2 based on quoted price in inactive markets or observable model input
  • Level 3 based on unobservable but significant inputs to the overall value
• IFRS 9 Modelling Course Case Study #1: participants will be presented with a few financial instruments and will classify them in their relevant categories
• Case Study #2: Participants will compute the impact on balance and P&L for different types of debt & equity instruments

Session 3 – Financial Assets Impairments

• Applies to amortised cost and FVTOCI mandatory fixed income instruments
• Incurred losses (IAS 39) has been replaced by expected losses (IFRS 9)
• Three stages process to determine impairments:
  • Stage 1: “12-month expected credit losses” with effective interest rate on the gross carrying amount
  • Stage 2: “lifetime expected credit losses” with effective interest rate on the gross carrying amount
  • Stage 3: “lifetime expected credit losses” with effective interest rate on gross on amortised costs
• Accounting treatment for financial instruments already impaired when acquired
• Case Study #3: Participants will assess several scenarios and consider what would be an appropriate response

Session 4 – Financial Liabilities & Own Credit

• IFRS 9 training will explore financial liabilities at amortised cost or FVTPL
• Own credit deterioration reduces institutions’ liabilities
• Liability reduction due to rating downgrade to be now classified in OCI
• Case Study #4: Participants will assess the impact of credit deterioration on their institutions' bonds

Session 5 – Hedge Accounting

• Qualification for hedge accounting
• Different types of hedge accounting, same as IAS 39, except for time value of money and forward points in foreign exchange forward:
  • Cash flow hedge
  • Fair value hedge
  • Net investment hedge for foreign subsidiaries
• Accounting treatment for time value of money for options: a two-step process through OCI
• Accounting treatment for foreign currency forward points in OCI
• IFRS 9 hedge accounting more closely aligned with risk management policy:
  • Removal of hedge effectiveness criteria (80% to 125%)
  • Extends eligibility of risk component to include non-financial items
  • Permits aggregate exposure that includes a derivative to be an eligible hedged item
  • Group of items and a net position (e.g. assets & liabilities or forecast sales & purchases) hedged collectively as a group
• IFRS 9 Course Case Study #5: Participants will classify a few hedging transactions in their relevant categories
• Case Study #6: Participants will value an interest rate swap accounted for as a cash flow hedge
• Case Study #7: participants will review and assess different hedge scenarios including risk component hedging, aggregate exposures and net position

Redcliffe’s IFRS 9 training courses are delivered by an expert who qualified as a Chartered Accountant in 1987 with a six-partner firm, Gilberts. This was following the completion of an accountancy foundation course. In the same year, he joined Binder Hamlyn to work in their Business Development Group.

In 1990 he joined a major training company to work as a trainer on their accountancy exam courses. During the next four years, he taught auditing, financial acquisition reporting and taxation for ACA, ACCA, CIMA and AAT exams, as well as the ACA multi-disciplinary case study. He mainly taught full-time courses organised for Deloitte, PWC and EY; where he was also personally responsible for the ACA (Association of Chartered Accountants) final-level auditing paper.

In 1993 he became a director of post-examination CPD training for accountants and was responsible for financial training programmes for non-accountants, especially solicitors. Around this time, he also started training in International Accounting Standards; initially for Ernst & Young’s non-UK-based professional staff in Europe.

Since 1998 he has been training on a freelance basis, concentrating on financial training for both accountants and non-accountants. Our IFRS 9 course trainer specialises in training on IFRS and US accounting standards and has presented on both subjects throughout Europe for the past 20 years. He has considerable experience in presenting training on the following topics:

• Accounting for financial instruments and insurance contracts.
• IFRS (International Financial Reporting Standards) reports issues for energy and pharmaceutical businesses.
• Completion accounts and the role of financial standards in corporate finance acquisition transactions.
• Accounting for business financial issues combinations – mergers, acquisitions and all joint and special purpose arrangements.

Through a mix of lectures and case studies, this IFRS 9 workshop will equip participants to achieve a detailed understanding of the latest IFRS 9 standard, both for financial assets, liabilities and derivatives, including:

• The classification and measurement of financial instruments
• The new impairment methodology is based on expected losses
• The fair value of financial liabilities and deterioration of institutions’ credit
• The different types of hedge accounting and the recent IFRS changes

• This IFRS 9 modelling course is a practical workshop led by an experienced trainer and accountant
• Comprehensive material covering all IFRS 9 angles
• Practical examples of issues around the new categories of financial asset and how the ECL impairment testing regime now works in practice
• A clear review of hedge accounting with real-life examples
• Delegates are encouraged to bring scenarios to solve during the session

Redcliffe Training’s IFRS 9 courses are designed for all auditors and accountants involved in the preparation of financial statements in compliance with IFRS 9. The course will also be useful for analysts who need to appreciate the key assumptions and uncertainties that the application of IFRS 9 will necessarily involve.

This course is designed to summarise the key requirements of IFRS 9 and to explain how these are different from IAS 39 and other guidance that came before, especially the extended use of fair value accounting through profit and loss (FVTPL) and calculating Expected Credit Loss provisions. The course is designed to be practical and can be adapted to meet particular issues relating to financial assets or liabilities.